What is Purchase Order (PO) Reconciliation?

Purchase order (PO) reconciliation is the process of comparing an organization's financial records of purchase orders with the invoices received from vendors and the goods or services actually received. It's a crucial step in the accounts payable process that ensures accuracy and prevents financial discrepancies.

Matching the purchase order, the vendor invoice, and the receiving report (also known as a Goods Received Note) enables institutions to confirm that they're paying for the correct quantity of goods at the agreed-upon price and that all items have been delivered as expected.

This reconciliation process is crucial for maintaining accurate financial records, managing cash flow effectively, and identifying and resolving errors, such as overbilling, underbilling, or missed deliveries.

The Three-Way Match: The Core of PO Reconciliation

At its core, PO reconciliation is a “three-way match,” a straightforward yet powerful concept that links three key documents:

• The Purchase Order (PO): This is the pre-purchase agreement. It's an official document sent by the buyer to the vendor, detailing the items, quantity, and price.
• The Vendor Invoice: This is the bill from the supplier. It's a request for payment for the goods or services they've delivered.
• The Receiving Report (also known as Goods Received Note or GRN): This is the link to parcel management. It's an internal document created by your company's mailroom or receiving department, confirming that the goods have physically arrived, their condition, and the quantity received. It’s the crucial third leg of the match, created the moment a parcel hits your doorstep.

For a payment to be approved, the details on all three documents must align.

The Mailroom's Role in the Reconciliation Process

The mailroom is the first point of control in the reconciliation journey. Before any financial check is performed, a physical check is conducted here. When a parcel arrives, the mailroom or receiving team doesn't just sign for it, they verify its contents against the accompanying packing slip.

This process culminates in the creation of a GRN, which serves as the official record of what was physically received. An accurate, timely GRN is the single most critical document for successful PO reconciliation. Modern mailroom management software enables the creation of this note digitally, complete with photos and timestamped data, which is instantly shared with the accounts payable team.

Common Discrepancies and How They are Discovered at the Door

Many of the most common reconciliation issues are caught at the point of receipt, thanks to a vigilant mailroom.

• Quantity Discrepancies: The vendor shipped 50 units, but the mailroom only received 48. This is flagged immediately on the GRN, preventing overpayment.
• Damaged or Incorrect Goods: A fragile item arrived broken, or the wrong model was delivered. The mailroom can note this on the GRN, and sometimes even include photos, ensuring the company doesn't pay for unusable products.
• Missing Invoices: Sometimes, the invoice is missing from the parcel. The mailroom's process helps identify this issue early, prompting the accounts payable team to follow up with the vendor promptly and avoid payment delays.

The PO Reconciliation Process: From Parcel to Payment

Here's how the entire, integrated process works:

1. Parcel Arrives: A parcel is delivered to the mailroom, where a clerk signs for it and performs a physical inspection.
2. GRN Creation: The clerk verifies the contents and generates a Goods Received Note, either manually or via a digital system.
3. Invoice and PO Match: The accounts payable team retrieves the corresponding purchase order and the vendor's invoice.
4. Three-Way Match: Accounts payable compares the GRN, PO, and invoice to ensure the item, quantity, and price are consistent.
5. Resolution and Payment: If all documents match, the invoice is approved for payment. If a discrepancy is found (e.g., the GRN shows a different quantity than the invoice), communication with the vendor begins to resolve the issue before any payment is made.

Technology's Role in Modern Mailroom and Reconciliation

While this process can be done manually, it's prone to human error and inefficiency. This is where technology shines, transforming PO reconciliation into a highly efficient, automated workflow.

• Advance Ship Notices (ASN): An ASN is an electronic notification from a vendor sent before a shipment arrives. It provides the receiving team with a digital packing slip, detailing what's coming and when. This allows the mailroom to prepare for the delivery and check items in much faster, using the ASN to create the GRN with just a few clicks.
• Electronic Data Interchange (EDI): This is the underlying technology that enables the seamless exchange of digital documents between businesses. Using EDI, purchase orders, invoices, and ASNs are transmitted automatically between the buyer's and vendor's computer systems, eliminating the need for manual data entry and reducing human error.
• Automated Matching: Modern software can automatically perform the three-way match by pulling data from the digital PO, invoice, and GRN. If a discrepancy is found, it automatically flags the transaction and sends a notification, allowing teams to focus on resolving exceptions rather than performing tedious manual checks.

Best Practices for an Integrated Process

To ensure a smooth, integrated system:

• Standardize: Develop a clear, universal process for receiving and documenting all parcels.
• Train Staff: Educate the mailroom and accounts payable teams on the importance of each step and how their roles connect.
• Communicate: Foster strong communication between departments to resolve any discrepancies quickly.
• Go Digital: Utilize technology to establish a paperless, traceable record for every incoming item, from ASN to GRN.

The Link Between Logistics and Finance

PO reconciliation is a fundamental financial control that bridges the physical world of receiving goods with the digital world of finance. It's a critical process that begins the moment a parcel arrives at your mailroom. By ensuring your mailroom and accounts payable teams work in sync, you can prevent errors, stop fraud, and achieve a healthier bottom line.

To eliminate manual data entry and create a seamless, paperless trail from the moment a parcel arrives, consider adopting a dedicated solution. Discover how modern mailroom management software can streamline your receiving process, empowering your capability to ensure that your financial and physical records are always in perfect sync.